Retailers vs.The Net: Round 2

Retailers need to know what they do best if they’re going to survive. The Internet has already upheaved them, and it’s still causing trouble. The high investment in infrastructure costs is a key problem for traditional retailers.

The incredible efficiencies of selling over the web has seen Amazon spend only $56 million on fixed assets such as computers and warehouses, while Barnes & Noble has spent $472 million on its 1,000 or more stores.

Moreover, analysts estimate that Amazon’s investment in new warehouses can support $15 billion in sales.

Virtual retailers are not the only threat to bricks-and-mortar stores, as large international companies explore the power of the Internet. A range of manufacturers like Sony and Ford have now announced they will soon sell direct.

Where auction fever has taken hold, buyer power will present retailers with even more problems than opportunities.

The second round battle of traditional retailers versus the Internet has begun as more Internet businesses expand. Lycos and Excite have announced similar growth plans to that of Amazon.

In many ways, retailers won the first round after the World Wide Web first appeared in 1995. This was because the idea of surfing the web was too virtual for the consumer.

In this round, however, surfing the web is more accepted and retailers may not be so lucky. Owning a database containing millions of loyal Internet users almost creates success for an online company before any product has launched. And the infrastructure savings for Internet companies are substantial.

The nature of competition has changed as a result of the Internet’s “now” quality. Witness the success and leadership of Dell. In addition, all trends indicate that we will purchase more through the Internet. We will buy our car via the Internet without seeing it first and buy our groceries online. All this will, of course, take time.

Meanwhile, retailers are probably going to become showrooms or places of entertainment as technology learns how to gratify our senses more and more.

Visitors to theme parks, such as Disney World, may have their “wish for experience” fulfilled by online superstores. Credit card companies may compete with computer manufacturers by offering free computers to customers purchasing items only through their branded card.

The future holds a very different view of retailers and manufacturers compared to what we understand today.

That future is also marked by companies being surprised by unforeseen competition. Such is the power of the Internet.

What car dealer five years ago would have suspected a software company such as Microsoft would be one of their biggest competitors today? Could banks have guessed two years ago that online stockbroker Etrade would siphon off their retail customers so easily?

Retailers will have only two ways to go if they do not reinvent themselves – either become a discount company with many outlets, or become an entertainment center (or showroom) without a cash register, and lots of products on the shelf.

The question retailers have to ask themselves is: “What are we better at doing than anybody else?” The Internet has been through this process over a five-year period.

It’s time for the retailers to get started.

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